CRISPR Therapeutics AG (CRSP) FY 2023 MD&A

Overview

We are a leading gene editing company focused on the development of CRISPR/Cas9-based therapeutics. CRISPR/Cas9 is a revolutionary technology for gene editing, the process of precisely altering specific sequences of genomic DNA. We aim to apply this technology to disrupt, delete, correct and insert genes to treat genetic diseases and to engineer advanced cellular therapies. We have advanced this technology from discovery to an approved medicine with unparalleled speed, culminating in the landmark first approval of a CRISPR-based therapy, CASGEVY (exagamglogene autotemcel [exa-cel]), in 2023 with our collaborators at Vertex Pharmaceuticals Incorporated, or Vertex. We believe that the combination of our technology, research and development capabilities, and proven ability to execute may enable us to create an entirely new class of highly effective and potentially curative therapies for patients with both rare and common diseases for whom current biopharmaceutical approaches have had limited success.

The use of CRISPR/Cas9 for gene editing was co-invented by one of our scientific founders, Dr. Emmanuelle Charpentier, the Acting and Founding Director of the Max Planck Unit for the Science of Pathogens in Berlin, Germany. Dr. Charpentier and her collaborators published work elucidating the mechanism by which the Cas9 endonuclease, a key component of CRISPR/Cas9, can be programmed to cut double-stranded DNA at specific locations. Dr. Charpentier and her collaborator, Dr. Jennifer Doudna of the University of California, Berkeley, shared the 2020 Nobel Prize in Chemistry for their groundbreaking work. We acquired exclusive rights to intellectual property encompassing CRISPR/Cas9 and related technologies from Dr. Charpentier and continue to strengthen our intellectual property estate through our own research and additional in-licensing efforts, furthering our leadership in gene editing therapeutics.

We have established a portfolio of therapeutic programs spanning four core franchises:

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Hemoglobinopathies: Our most advanced program, CASGEVY, has received approval in the United States and other countries for the treatment of eligible patients with severe SCD or TDT, two genetic disorders of hemoglobin, or hemoglobinopathies, with high unmet medical need. In addition, we have further research efforts on targeted conditioning and in vivo editing of hematopoietic stem cells that have the potential to expand the number of patients that could benefit significantly.

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Immuno-oncology and autoimmune: We are progressing multiple next-generation gene-edited cell therapy programs, including allogeneic CAR T candidates for the treatment of hematological and solid tumor cancers and autoimmune diseases.

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In vivo approaches: We are advancing a portfolio of programs leveraging in vivo editing for both common and rare diseases, starting with the treatment and prevention of cardiovascular disease.

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Type 1 diabetes: We have multiple parallel efforts using allogeneic, gene-edited, hypoimmune, stem cell-derived beta cells to address T1D without the need for chronic immunosuppression.

Depending on the program, we take either an ex vivo approach, in which we edit cells outside of the human body before administering them to the patient, or an in vivo editing approach, where we deliver the CRISPR-based therapeutic directly to target cells within the human body. In addition, we continue to innovate on our platform to develop next-generation technologies that can enable new therapies. Through these efforts, we aim to unlock the full potential of CRISPR/Cas9 to create medicines that can transform the lives of patients.

Our mission is to create transformative gene-based medicines for serious human diseases. We believe that our innovative research, translational expertise and clinical development experience position us as a leader in the development of CRISPR-based therapeutics.

Hemoglobinopathies

CASGEVY is a non-viral, ex vivo CRISPR/Cas9 gene-edited cell therapy, in which a patient’s own hematopoietic stem and progenitor cells are edited at the erythroid specific enhancer region of the BCL11A gene through a precise double-strand break. This edit results in the production of high levels of fetal hemoglobin in red blood cells, which can compensate for the defective adult hemoglobin in patients with SCD and TDT. CASGEVY is the first therapy to emerge from our strategic partnership with Vertex Pharmaceuticals Incorporated, or Vertex, and is being advanced under a joint development and commercialization agreement between us and Vertex and certain of its affiliates.

In 2023, CASGEVY became the first-ever approved CRISPR-based gene-editing therapy in the world. To date, CASGEVY has been approved in the United States, Europe, Great Britain, Saudi Arabia, and Bahrain for the treatment of eligible patients 12 years and older with SCD or TDT. Efficacy data presented to date support the profile of this therapy as a potential one-time functional cure for people with severe SCD and TDT.

Immuno-Oncology and Autoimmune

We believe CRISPR/Cas9 has the potential to create the next generation of CAR T cell therapies that may have a superior product profile and allow broader patient access compared to current autologous therapies. We are advancing several cell therapy programs for oncology and/or autoimmune indications, including two next-generation allogeneic CAR T programs, CTX112 targeting CD19 and CTX131 targeting CD70. These product candidates incorporate two novel gene edits—knock-out of Regnase-1 and knock-out of transforming growth factor-beta receptor type 2, or TGFBR2—designed to enhance CAR T potency and reduce CAR T exhaustion. Emerging pharmacology data, including pharmacokinetics, from ongoing clinical trials of CTX112 and CTX131, indicate that the novel potency gene edits lead to significantly higher CAR T cell expansion and functional persistence in patients compared to our first-generation candidates that did not incorporate these edits. In addition, the next-generation candidates exhibit increased manufacturing robustness, with a higher and more consistent number of CAR T cells produced per batch. We are producing CTX112 and CTX131 for clinical trials at our internal GMP manufacturing facility.

CTX112 is being investigated in an ongoing clinical trial designed to assess the safety and efficacy of the candidate in adult patients with relapsed or refractory CD19-positive B-cell malignancies who have received at least two prior lines of therapy. In addition, we plan to initiate a clinical trial of CTX112 in systemic lupus erythematosus in the first half of 2024, with the potential to expand into additional autoimmune indications in the future. CTX131 is being investigated in an ongoing clinical trial designed to assess the safety and efficacy of the candidate in adult patients with relapsed or refractory solid tumors. In addition, we plan to expand trials of CTX131 into hematologic malignancies, including T- and B-cell malignancies.

In Vivo

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Our in vivo gene editing strategy focuses on gene disruption and whole gene correction – the two technologies required to address the vast majority of the most prevalent severe monogenic diseases as well as many common diseases. We have established a leading platform for in vivo gene editing and are rapidly advancing a broad portfolio of in vivo programs. Our first in vivo programs target the liver, taking advantage of validated LNP, delivery technologies, and aim to treat diseases where we can produce a strong therapeutic effect by safely disrupting a gene with well-understood genetic association. For example, our first two in vivo programs, CTX310 and CTX320, aim to address cardiovascular disease by disrupting the validated targets ANGPTL3 and Lp(a), respectively. We have initiated Phase 1 clinical trials for both CTX310 and CTX320. Building upon CTX310 and CTX320, we have a number of earlier stage investigational in vivo programs leveraging gene disruption in the liver for both rare and common diseases. In addition, we have programs focused on gene correction in the liver, including programs leveraging technologies developed by our CRISPR-X research team. Finally, we are pursuing additional delivery technologies, including further advancements to nanoparticle technology and AAV vectors, for delivery to tissues beyond the liver, including hematopoietic stem cells.

Type 1 Diabetes

We are advancing a series of programs focused on the development of gene-edited stem cell-derived therapies for the treatment of T1D. We believe our gene editing capabilities have the potential to enable a beta-cell replacement product candidate that may deliver durable benefit to patients without the need for long-term immunosuppression. We have three parallel efforts to achieve this goal. First, our most advanced product candidate, CTX211, is an allogeneic, gene-edited, hypoimmune, stem cell derived product candidate in a device that is implanted into patients and intended to produce insulin in a glucose-dependent manner. This program, formerly known as VCTX211, originated from our collaboration with ViaCyte, Inc., a subsidiary of Vertex, and was developed by applying our gene editing technology to ViaCyte’s proprietary stem cell capabilities. CTX211 is being investigated in an ongoing Phase 1/2 clinical trial designed to assess the safety, tolerability and efficacy of CTX211 in adult patients with T1D. Second, we have research efforts focused on a deviceless beta cell replacement approach consisting of unencapsulated beta cells derived from edited stem cells. Third, we have granted a non-exclusive license to certain of our CRISPR/Cas9 intellectual property to Vertex to accelerate Vertex’s development of hypoimmune cell therapies for T1D, for which we received $170 million in upfront and milestone payments in 2023 and remain eligible to receive additional research and development milestones and royalties on future products.

CRISPR-X

While we have made significant progress with our current portfolio of programs, we recognize that we need to continue to innovate to unlock the full power of gene editing and bring potentially transformative therapies to even more patients. We have a dedicated early-stage research team called CRISPR-X that focuses on innovating next-generation editing modalities. CRISPR-X is developing technologies to enable whole gene correction and insertion without requiring homology-directed repair or viral delivery of DNA, such as all-RNA gene correction, non-viral delivery of DNA and novel gene insertion techniques.

Manufacturing

The manufacturing processes for cell and genetic therapies are complex and require customized systems, equipment, facilities and expertise for each program and therapy. Due to the critical importance of high-quality manufacturing and control of production timing and know-how, we are establishing internal manufacturing capabilities and have established our own cell therapy manufacturing facility to support our multifaceted strategy to develop treatments and therapies for people suffering from serious diseases through transformative gene-based medicines. We have an approximately 50,000 square foot manufacturing facility in Framingham, Massachusetts intended for clinical and commercial production of our product candidates and certain components thereof for certain of our programs. Our operations at this facility are compliant with current Good Manufacturing Practice, or cGMP, and in 2023 we began manufacturing CTX112 and CTX131 at this facility for our clinical trials of these product candidates.

In addition to utilizing our internal manufacturing facility, we expect we will continue to rely on external manufacturing capabilities realized via contract manufacturing organization relationships in the United States and abroad. We have entered into certain manufacturing and supply arrangements with third-party suppliers to support production of our product candidates and their components. We plan to continue to rely on qualified third-party organizations to produce or process bulk compounds, formulated compounds, viral vectors or engineered cells for IND-supporting activities and early stage clinical trials.

Partnerships

Given the numerous potential therapeutic applications for CRISPR/Cas9, we have partnered strategically to broaden the indications we can pursue and to accelerate programs by accessing specific technologies and/or disease-area expertise. For additional information regarding certain of these partnerships, please see “Business—Strategic Partnerships and Collaborations.”

Vertex. We established our initial collaboration agreement in 2015 with Vertex, which focused on TDT, SCD, cystic fibrosis and select additional indications. In December 2017, we entered into a joint development and commercialization agreement with Vertex pursuant to which, among other things, we are co-developing and co-commercializing CASGEVY for TDT and SCD. In April 2021, we and Vertex amended and restated our existing joint development and commercialization agreement, pursuant to which, among

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other things, we will continue to develop and commercialize CASGEVY for TDT and SCD in partnership with Vertex. We also entered into a strategic collaboration and license agreement with Vertex in June 2019 for the development and commercialization of products for the treatment of Duchenne muscular dystrophy, or DMD, and myotonic dystrophy type 1, or DM1 and, in March 2023, we entered into a non-exclusive license agreement with Vertex for Vertex to utilize our gene editing technology in diabetes.

ViaCyte. We entered into a research and collaboration agreement in September 2018 with ViaCyte to pursue the discovery, development and commercialization of gene-edited allogeneic stem cell therapies for the treatment of diabetes, and in July 2021, we entered into a joint development and commercialization agreement with ViaCyte, or the ViaCyte JDCA. In connection with entering into the ViaCyte JDCA, our existing research collaboration agreement with ViaCyte expired in accordance with its terms. In the third quarter of 2022, Vertex announced it had acquired ViaCyte and the rights to the ViaCyte Collaboration Field, and in March 2023, we entered into an amendment to the ViaCyte JDCA pursuant to which, among other things, we adjusted certain rights and obligations of the parties thereunder. In December 2023, ViaCyte elected to opt-out of the collaboration with us for the co-development and co-commercialization of gene-edited stem cell therapies for the treatment of diabetes. Per the opt-out terms, once the opt-out is complete, the on-going collaboration assets will be wholly owned by us, subject to a royalty on future sales owed to ViaCyte. The opt-out became effective in early February 2024. The ViaCyte collaboration assets include CTX211 (formerly VCTX211), an allogeneic, gene-edited, hypoimmune, stem cell derived product candidate in a device that is implanted into patients and intended to produce insulin in a glucose-dependent manner. We are continuing to advance a Phase 1 clinical trial for CTX211 for the treatment of T1D.

Bayer. We entered into an option agreement in the fourth quarter of 2019 with Bayer pursuant to which Bayer has an option to co-develop and co-commercialize two products that we advance for the diagnosis, treatment, or prevention of certain autoimmune disorders, eye disorders, or hemophilia A disorders for a specified period of time, or, under certain circumstances, exclusively license such optioned products.

Other Partnerships. We have entered into a number of additional collaborations and license agreements to support and complement our hematopoietic stem cell, immuno-oncology and autoimmune, in vivo and T1D programs and platform, including agreements with: Nkarta, Inc. to develop and commercialize products leveraging donor-derived, gene-edited CAR-NK cells; Capsida Biotherapeutics, Inc. to develop in vivo gene editing therapies delivered with engineered AAV vectors; Roswell Park Comprehensive Cancer Center to advance a gene-edited autologous CAR T program against a new target; MaxCyte, Inc. on ex vivo delivery for our hemoglobinopathy and immuno-oncology programs; CureVac AG on optimized mRNA constructs and manufacturing for certain in vivo programs; and KSQ Therapeutics, Inc. on intellectual property for our allogeneic immuno-oncology programs.

Financial Overview

Since our inception in October 2013, we have devoted substantially all of our resources to our research and development efforts, undertaking drug discovery and preclinical development activities, building and protecting our intellectual property estate, establishing internal manufacturing capabilities, organizing and staffing our company, business planning, raising capital and providing general and administrative support for these operations. To date, we have primarily financed our operations through private placements of our preferred shares, common share issuances, convertible loans and payments related to certain of our collaboration agreements with strategic partners.

While we were in a net income position in certain previous years due to upfront payments associated with our collaborations with Vertex, we have a history of recurring losses and expect to continue to incur losses for the foreseeable future. Our net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase as we continue our current research programs and development activities; seek to identify additional research programs and additional product candidates; conduct initial drug application supporting preclinical studies and initiate clinical trials for our product candidates; initiate preclinical testing and clinical trials for any other product candidates we identify and develop; maintain, defend, protect and expand our intellectual property estate; further develop our gene editing platform; hire additional research, clinical and scientific personnel; incur facilities costs associated with such personnel growth; establish internal manufacturing capabilities and infrastructure; and incur additional costs associated with operating as a public company.

Revenue recognition

We have not generated any revenue to date from product sales. During the years ended December 31, 2023, 2022 and 2021, we recognized $370.0 million, $0.4 million and $913.1 million, respectively, of collaboration revenue, which is primarily related to our collaboration agreements with Vertex.

For the years ended December 31, 2023, 2022 and 2021, we generated $1.2 million, $0.8 million and $1.9 million, respectively, of grant revenue related to certain contracts with not-for-profit entities.

For additional information about our revenue recognition policy, see Note 2 and Note 8 of the notes to our audited consolidated financial statements included in this Annual Report on Form 10-K.

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Research and development expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our product discovery efforts and the development of our product candidates, which include:

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employee-related expenses, including salaries, benefits and equity-based compensation expense;

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costs of services performed by third parties that conduct research and development and preclinical activities on our behalf;

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costs of purchasing lab supplies and non-capital equipment used in our preclinical activities and in manufacturing preclinical study materials, as well as supplies and materials used to manufacture clinical drug material;

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consultant fees;

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facility costs, including rent, depreciation and maintenance expenses; and

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fees and other payments related to acquiring and maintaining licenses under our third-party licensing agreements.

Our external research and development expenses support our various preclinical and clinical programs, and as such we do not break down external research and development expenses further. Our internal research and development expenses consist of payroll and benefits expenses, facilities expense, and other indirect research and development expenses incurred in support of overall research and development activities and as such are not allocated to a specific development stage or therapeutic area. Research and development costs are expensed as incurred. Nonrefundable advance payments for research and development goods or services to be received in the future are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed. At this time, we cannot reasonably estimate or know the nature, timing or estimated costs of the efforts that will be necessary to complete the development of any product candidates we may identify and develop. This is due to the numerous risks and uncertainties associated with developing such product candidates, including the uncertainty of:

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successful completion of preclinical studies and IND-enabling studies;

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successful enrollment in, and completion of, clinical trials;

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receipt of marketing approvals from applicable regulatory authorities;

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establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;

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obtaining and maintaining patent and trade secret protection and non-patent exclusivity;

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launching commercial sales of the product, if and when approved, whether alone or in collaboration with others;

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acceptance of the product, if and when approved, by patients, the medical community and third-party payors;

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effectively competing with other therapies and treatment options;

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a continued acceptable safety profile following approval;

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enforcing and defending intellectual property and proprietary rights and claims; and

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achieving desirable medicinal properties for the intended indications.

A change in the outcome of any of these variables with respect to the development of any product candidates or the subsequent commercialization of any product candidates we may successfully develop could significantly change the costs, timing and viability associated with the development of that product candidate.

Research and development activities are central to our business model. We expect our research and development costs to increase for the foreseeable future as our current development programs progress, new programs are added and as we continue to prepare regulatory filings. These increases will likely include the costs related to the implementation and expansion of clinical trial sites and related patient enrollment, monitoring, program management and manufacturing expenses for current and future clinical trials.

General and administrative expenses

General and administrative expenses consist primarily of employee related expenses, including salaries, benefits and equity-based compensation, for personnel in executive, finance, accounting, business development and human resources functions. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters and fees for accounting and consulting services.

We expect to continue to incur general and administrative expenses consistent with general and administrative functions at research and development companies of our size and stage of development, which may increase in the future to support continued

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research and development activities, and potential commercialization of our product candidates. In addition, we anticipate ongoing expenses related to the reimbursements of third-party patent related expenses in connection with certain of our in-licensed intellectual property.

Collaboration expense, net

Collaboration expense, net, consists of operating expenses related to the CASGEVY program under our collaboration with Vertex. Under the Amended A&R Vertex JDCA, we have an option to defer our portion of specified costs on the CASGEVY program in excess of $110.3 million for the years ended December 31, 2022, 2023 and 2024. The $110.3 million for 2023 does not include amounts attributable to our share of certain costs arising from a license agreement between Vertex and a third party, which we agreed to pay to Vertex upon the occurrence of an event specified in Amendment No. 1 to the A&R Vertex JDCA and further described in Note 8 of the notes to our consolidated financial statements included in this Annual Report on Form 10-K. We exercised our option to defer our portion of specified costs incurred in 2022 and 2023 for the CASGEVY program in excess of the amounts described above. Any deferred amounts are only payable to Vertex as an offset against future profitability of the CASGEVY program and the amounts payable are capped at a specified maximum amount per year.

Other income (net)

Other income consists primarily of interest income earned on investments.

Critical Accounting Policies and Significant Judgments and Estimates

This discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates—which also would have been reasonable—could have been used. On an ongoing basis, we evaluate our estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations.

Revenue

Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, or ASC 606, applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases and collaboration arrangements. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps:

1) Identify the contract with the customer

A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the related payment terms, (ii) the contract has commercial substance and (iii) we determine that collection of substantially all consideration for goods and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

2) Identify the performance obligations in the contract

Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other available resources, and are distinct in the context of the contract, whereby the transfer of the good or service is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods and services, we must apply judgment to determine whether promised goods and services are capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.

3) Determine the transaction price

The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods and services to the customer. To the extent the transaction price includes variable consideration, such as research, development, regulatory and commercial milestones, we determine if it is probable that we will receive such amounts and there is no risk of a

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significant revenue reversal. When we cannot conclude that receipt of such amounts is probable, we constrain the related variable consideration resulting in its exclusion from transaction consideration. In determining the portion of the transaction consideration to be constrained, we consider the probability and uncertainty that the related research, developmental, regulatory and commercial milestones will be achieved given the nature of research and clinical development and the stage of the underlying programs. This assessment is performed at each reporting period. In making this evaluation, we consider both internal and external information available, including information from industry publications and other relevant factors. Changes to the constraint of variable consideration can have a material effect on the amount of revenue recognized in the period.

4) Allocate the transaction consideration to performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction consideration is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction consideration to each performance obligation on a relative standalone selling price basis unless the transaction consideration is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The consideration to be received is allocated among the separate performance obligations based on relative standalone selling prices. In determining these estimated standalone selling prices, we make a number of significant judgments including, for licenses, management’s assumptions regarding probability weighted projected discounted cash flows for each of the collaboration development programs. The estimated standalone selling prices are sensitive to changes in assumptions, such as probabilities of scientific success, discount rate and certain assumptions that form the basis of forecasted cash flows. In developing these assumptions, management considers both internal and external information available, including information from other guideline companies within the same industry and other relevant factors. Changes to these assumptions can have a material effect on the allocation of the transaction consideration to performance obligations, as well as the amount and timing of revenue recognized.

5) Recognize revenue when or as we satisfy a performance obligation

We satisfy performance obligations over time or at a point in time, depending on the nature of the performance obligation. Revenue is recognized over time if the customer simultaneously receives and consumes the benefits provided by the entity’s performance, the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. If the entity does not satisfy a performance obligation over time, the related performance obligation is satisfied at a point in time by transferring the control of a promised good or service to a customer.

Collaboration Arrangements

We record the elements of our collaboration agreements that represent joint operating activities in accordance with ASC 808, Collaborative Arrangements, or ASC 808. Accordingly, the elements of the collaboration agreements that represent activities in which both parties are active participants and to which both parties are exposed to the significant risks and rewards that are dependent on the commercial success of the activities, are recorded as collaborative arrangements.

We evaluate the proper presentation of the commercial activities and the profit and loss sharing associated with the collaboration agreements. ASC 808 states that when payments between parties in a collaborative arrangement are not within the scope of other authoritative accounting literature, the income statement classification should be based on the nature of the arrangement, the nature of its business operations and the contractual terms of the arrangement. To the extent that these payments are not within the scope of other authoritative accounting literature, the income statement classification for the payments shall be based on an analogy to authoritative accounting literature or if there is no appropriate analogy, a reasonable, rational, and consistently applied accounting policy election.

Accrued research and development expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to:

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CROs in connection with clinical studies;

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investigative sites in connection with clinical studies;

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vendors in connection with preclinical development activities; and

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vendors related to development, manufacturing and distribution of clinical trial materials.

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We base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple CROs that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical study milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period and adjust accordingly.

Equity-Based Compensation

Our share-based compensation programs grant awards that have included stock options, restricted stock units and restricted stock awards. Grants are awarded to employees and non-employees, including directors.

We account for our stock-based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation, or ASC 718. ASC 718 requires all stock-based payments to employees and non-employee directors, including grants of employee stock options and restricted stock units and modifications to existing stock options, to be recognized in the consolidated statements of operations and comprehensive loss based on their fair values. We use the Black-Scholes option pricing model to determine the fair value of options granted.

We account for forfeitures as they occur instead of estimating forfeitures at the time of grant and revising those estimates in subsequent periods if actual forfeitures differ from its estimates. Stock-based compensation expense recognized in the financial statements is based on awards for which performance or service conditions are expected to be satisfied.

Our stock-based awards are subject to service or performance-based vesting conditions. Compensation expense related to awards to employees, directors and non-employees with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term. Compensation expense related to awards to employees with performance-based vesting conditions is recognized based on the grant date fair value over the requisite service period using the accelerated attribution method to the extent achievement of the performance condition is probable.

We expense restricted stock unit awards to employees based on the fair value of the award on a straight-line basis over the associated service period of the award.

We estimate the fair value of our option awards to employees, directors and non-employees using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including (i) the expected stock price volatility, (ii) the calculation of expected term of the award, (iii) the risk-free interest rate and (iv) expected dividends. In 2023, we changed our calculation for our volatility estimate from using a blend of the Company's data as well as peer company data to using the historical volatility of the Company's publicly traded stock for awards granted during the year. In prior periods, expected volatility was calculated based on a blend of the Company’s reported volatility data for the length of time that market data is available for the Company’s stock and the historical data for a representative group of publicly traded companies, for which historical information is available. For these analyses, the Company selected companies with comparable characteristics to itself including enterprise value, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected life of the stock-based awards. The Company computed the historical volatility data using the daily closing prices during the equivalent period of the calculated expected term of its stock-based awards. We have estimated the expected term of our employee stock options using the “simplified” method, whereby, the expected term equals the arithmetic average of the vesting term and the original contractual term of the option due to its lack of sufficient historical data. The risk-free interest rates for periods within the expected term of the option are based on the U.S. Treasury securities with a maturity date commensurate with the expected term of the associated award. We have never paid, and do not expect to pay, dividends in the foreseeable future.

Recent Accounting Pronouncements

Refer to Note 2 of the notes to our consolidated financial statements included in this Annual Report on Form 10-K for a discussion of recent accounting pronouncements.

Results of Operations

The following is a discussion of the components of results of operations. This section generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 21, 2023.

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Comparison of Years Ended December 31, 2023 and 2022

The following table summarizes our results of operations for the years ended December 31, 2023 and 2022, together with the dollar change in those items:

Collaboration Revenue

Collaboration revenue was $370.0 million for the year ended December 31, 2023, compared to $0.4 million for the year ended December 31, 2022. Collaboration revenue for the year ended December 31, 2023 was primarily associated with the $370.0 million of payments from Vertex in connection with (i) the approval of CASGEVY, which triggered Vertex’s obligation to make a $200.0 million milestone payment to us, which is included in accounts receivable in the accompanying consolidated balance sheets as of December 31, 2023, and (ii) the Non-Ex License Agreement, pursuant to which we agreed to license to Vertex, on a non-exclusive basis, certain of our gene editing intellectual property to exploit certain products for the diagnosis, treatment or prevention of diabetes type 1, diabetes type 2 or insulin dependent / requiring diabetes throughout the world, which resulted in upfront and milestone payments of $170.0 million in 2023. Collaboration revenue was not significant for the year ended December 31, 2022. Refer to Note 8 of the notes to our consolidated financial statements included in this Annual Report on Form 10-K for a description of revenue recognized related to Vertex.

Grant Revenue

Grant revenue was $1.2 million and $0.8 million, respectively, for the years ended December 31, 2023 and 2022.

Research and Development Expenses

Research and development expenses were $387.3 million for the year ended December 31, 2023, compared to $461.6 million for the year ended December 31, 2022. The following table summarizes our research and development expenses for the years ended December 31, 2023 and 2022, together with the changes in those items in dollars (in thousands):

The decrease of approximately $74.3 million was primarily attributable to the following:

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$67.6 million of decreased external research and development costs, primarily associated with a decrease in variable external research and manufacturing costs;

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$8.7 million of decreased facility expenses due to incurring rent expense on both our current and previous U.S. headquarters for research and development for a portion of 2022, whereas in 2023, we did not incur any rent expense on our previous U.S. headquarters for research and development due to the termination of the lease;

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$7.6 million of decreased stock-based compensation expenses primarily due to an overall decrease in the fair value of equity awards granted in 2023 and 2022; offset by

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$8.1 million of increased sublicense and license fees, primarily attributable to research and development licenses and milestones due to strategic partners in connection with the advancement of our clinical programs.

General and administrative expenses

General and administrative expenses were $76.2 million for the year ended December 31, 2023, compared to $102.5 million for the year ended December 31, 2022. The decrease of $26.3 million was primarily attributable to decreased stock-based compensation, decreased professional services including intellectual property costs, decreased facility costs as described above, as well as decreased headcount-related expenses.

Collaboration expense, net

Collaboration expense, net, was $130.3 million for the year ended December 31, 2023, compared to $110.3 million for the year ended December 31, 2022. The increase of $20.0 million was attributable to our share of certain costs arising from a license agreement between Vertex and a third party, which we agreed to pay to Vertex upon the occurrence of an event specified in Amendment No. 1 to the A&R Vertex JDCA and further described in Note 8 of the notes to our consolidated financial statements included in this Annual Report on Form 10-K.

We exercised our option to defer our portion of specified costs incurred in 2022 and 2023 for the CASGEVY program in excess of the deferral limit under the A&R Vertex JDCA, as amended. We deferred $80.9 million and $36.1 million of our share of costs incurred under the A&R Vertex JDCA, as amended, for 2023 and 2022, respectively. These deferred costs will be recognized by us when recoverability of such deferred amounts by Vertex is probable and the amount can be reasonably estimated. As of December 31, 2023, no such deferred amounts have been recognized. Refer to Note 8 for further discussion of our arrangements with Vertex.

Other income, net

Other income, net, was $71.8 million for the year ended December 31, 2023, compared to $22.7 million for the year ended December 31, 2022. The increase in other income, net, was due to higher interest rates.

Liquidity and Capital Resources

Sources of Liquidity

We have predominantly incurred losses and cumulative negative cash flows from operations since our inception. As of December 31, 2023, we had $1,695.7 million in cash, cash equivalents and marketable securities, of which approximately $2.7 million was held outside of the United States, and an accumulated deficit of $999.7 million. We anticipate that we will continue to incur losses for at least the next several years. We expect to continue to incur research and development costs and general and administrative expenses, as well as expenses related to potential commercialization of our product candidates, consistent with costs associated with research and development at companies of our size and stage of development, and, as a result, we will need additional capital to fund our operations, which we may raise through public or private equity or debt financings, strategic collaborations, or other sources.

At-the-Market Offerings

In August 2019, we entered into an Open Market Sale AgreementSM with Jefferies under which we were able to offer and sell, from time to time at our sole discretion through Jefferies, as our sales agent, our common shares, par value of CHF 0.03 per share, or the August 2019 Sales Agreement. In connection with the August 2019 Sales Agreement, as amended, we have filed several prospectus supplements with the SEC to offer and sell, from time to time, common shares.

In 2021, we issued and sold 1.4 million common shares at an average price of $168.23 per share for aggregate proceeds of $224.5 million, which were net of equity issuance costs of $3.1 million. An additional $2.3 million of stamp taxes related to this amount was paid in 2021.

In 2022, the sale of common shares pursuant to the 2019 Sales Agreement and the current prospectus supplement was not significant.

In 2023, we issued and sold 0.5 million common shares at an average price of $72.32 per share for aggregate proceeds of $32.7 million, which were net of equity issuance costs of $0.4 million. An additional $0.3 million of stamp taxes related to this amount was paid in 2023.

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As of December 31, 2023, we have $385.6 million remaining under our current prospectus supplement and have issued and sold an aggregate of 1.5 million common shares at an average price of $139.91 per share for aggregate proceeds of $211.5 million, which were net of equity issuance costs of $2.9 million.

Sources of Liquidity

Cash Flows

Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 21, 2023.

The following table provides information regarding our cash flows for each of the periods below:

Operating Activities

Net cash used in operating activities was $260.4 million for the year ended December 31, 2023, compared to net cash used in operating activities of $495.7 million for the year ended December 31, 2022. The decrease in cash used in operating activities was primarily driven by $170.0 million of upfront and milestone payments from Vertex, as well as reductions in research and development and general and administrative expenses as described above.

Investing Activities

Net cash provided by investing activities for the year ended December 31, 2023 was $374.6 million and consisted primarily of maturities of marketable securities in excess of purchases of marketable securities of $386.6 million. Net cash used in investing activities for the year ended December 31, 2022 was $258.7 million and consisted primarily of purchases of marketable securities in excess of maturities of marketable securities of $221.5 million, as well as purchases of property, plant and equipment of $37.2 million.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2023 was $62.7 million and consisted of net proceeds of $32.7 million from the issuance of common shares and net proceeds of $29.9 million from stock option exercises and employee stock purchase plan, or ESPP, contributions. Net cash provided by financing activities for the year ended December 31, 2022 was $38.6 million and consisted primarily of net proceeds of $37.6 million from stock option exercises and ESPP contributions.

Funding Requirements

Our primary uses of capital are, and we expect will continue to be, research and development activities, manufacturing activities, compensation and related expenses, laboratory and related supplies, legal and other regulatory expenses, patent prosecution filing, defense and intellectual property maintenance costs, and general overhead costs, including costs associated with operating as a public company. We expect to continue to incur operating expenses consistent with costs associated with research and development at companies of our size and stage of development, which may increase in the future to support continued research and development activities and potential commercialization of our product candidates.

Although we and our partner, Vertex, received marketing approval of CASGEVY in 2023 in certain jurisdictions, and have received a subsequent approval in 2024, most of our programs are still in early stages of development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development, manufacture and commercialization of any current or future product candidates, if approved, or whether, or when, we may achieve profitability. Until such time as we can generate substantial product revenues, if ever, we expect to finance our cash needs through a combination of equity financings, debt financings and payments received in connection with our collaboration agreements. We intend to consider opportunities to raise additional funds through the sale of equity or debt securities when market conditions are favorable to us to do so. However, the trading prices for our common shares and other biopharmaceutical companies have been highly volatile. As a result, we may face difficulties raising capital through sales of our common shares or such sales may be on unfavorable terms. In addition, a recession, depression or other sustained adverse market event, including resulting from the continued spread of the coronavirus or the recent failure of certain banks and financial institutions in the United States and globally, could materially and adversely affect our

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business and the value of our common shares. To the extent that we raise additional capital through the future sale of equity or debt securities, the ownership interests of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing shareholders. If we raise additional funds through collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Outlook

Based on our research and development plans and our timing expectations related to the progress of our programs, we expect our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditures for at least the next 24 months without giving effect to any additional proceeds we may receive under our collaboration with Vertex and any other capital raising transactions we may complete. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. Given our need for additional financing to support the long-term clinical development of our programs, we intend to consider additional financing opportunities when market terms are favorable to us.

Our ability to generate revenue and achieve profitability depends significantly on our success in many areas, including: developing our delivery technologies and our gene editing technology platform; selecting appropriate product candidates to develop; completing research and preclinical and clinical development of selected product candidates; obtaining regulatory approvals and marketing authorizations for product candidates for which we complete clinical trials; developing a sustainable and scalable manufacturing process for product candidates; launching and commercializing product candidates for which we obtain regulatory approvals and marketing authorizations, either directly or with a collaborator or distributor; obtaining market acceptance of our product candidates, either directly or with a collaborator or distributor, if approved, including for CASGEVY; addressing any competing technological and market developments; negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter; maintaining good relationships with our collaborators and licensors; maintaining, defending, protecting and expanding our estate of intellectual property rights, including patents, trade secrets and know-how; and attracting, hiring and retaining qualified personnel.

Contractual and Other Obligations

Operating lease and sublease obligations

Our operating lease obligations primarily consist of lease payments on our office and laboratory facility in Boston, Massachusetts, as well as lease payments on our cell manufacturing facility in Framingham, Massachusetts, which are described in further detail in Note 7 of our consolidated financial statements included in this Annual Report on Form 10-K. Future contractual payments on operating lease and sublease obligations due within one year of December 31, 2023 are $28.7 million, and future contractual payments on operating lease and sublease obligations due greater than one year from December 31, 2023 are $293.9 million.

Other obligations

Under the A&R Vertex JDCA, as amended, we are allowed to defer a portion of our share of costs under the arrangement if spending on the CASGEVY program exceeds specified amounts. Any deferred amounts are only payable to Vertex as an offset against future profitability of the CAGEVY program and the amounts payable are capped at a specified maximum amount per year. Deferred costs associated with the CASGEVY program have not been recognized as of December 31, 2023 because a reasonable estimate of future payments against future profitability cannot be made.

In the normal course of business, we enter into agreements with contract research organizations for clinical trials and clinical supply manufacturing and with vendors for preclinical research studies and other services and products for operating purposes. These contracts are generally cancelable at any time by us upon less than 180 days’ prior written notice. Certain of these agreements require us to pay milestones to such third parties upon achievement of certain development, regulatory or commercial milestones as further described in Note 9 of our consolidated financial statements included in this Annual Report on Form 10-K. Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement of certain development, regulatory approval and commercial milestones, which may not be achieved.

We also have obligations to make future payments to third parties that become due and payable on the achievement of certain milestones, including future payments to third parties with whom we have entered into research, development and commercialization agreements. We have not included these commitments on our balance sheet because the achievement and timing of these milestones is not fixed and determinable.

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